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Sagging exports hit German economy

Fri, Feb 24, 2012, 00:00

Germany's economy contracted by 0.2 per cent in the fourth quarter on sagging exports and private consumption, data showed today, but analysts said they expected Europe's growth engine to pick up steam again this year.

Exports in particular dropped 0.8 per cent in the fourth quarter after growing 2.6 per cent in the previous three months.

Economists put this down to weaker demand from the euro zone, which is mired in a sovereign debt crisis.

"The economy was driven into the red by the decline in exports, but this was weaker than expected," said Berenberg Bank's Christian Schulz. "Fewer exports to the euro zone were largely offset by stronger demand from non-EU countries. The fact imports declined only slightly, despite lesser fuel imports due to a milder winter, would suggest that domestic demand is still robust."

Germany's traditionally export-led economy had grown 0.6 per cent in the third quarter, contributing to 3 per cent full year growth.

Economists now expect the economy to stagnate in the first quarter of 2012, dodging the two quarters of negative growth which define a recession, before recovering from the second quarter on the back of private consumption.

Forward-looking indicators are upbeat. Business sentiment rose to its strongest in seven months in February, a key survey showed yesterday.

Arnd Schaefer, an economist at WestLB noted that while private consumption shrank 0.2 per cent in the last three months of 2011, the underlying trend was positive.

Third quarter data was revised upwards to show consumption growing 1.2 per cent versus an originally reported 0.8 per cent.

"Private consumption has emerged to be stronger than expected; the third quarter was revised upwards, while the fall at the end of 2011 was relatively small," he said. "Private consumption should support the economy this year. We expect gross domestic product growth of 0.8 per cent in 2012."